The growing realization of inefficiencies in the public enterprises was one of the key factors underlying Federal Governments decision to privatize government-owned enterprises. The range of benefits accruing to the government from privatisation cannot be overemphasized, with palpable quantitative and qualitative positive effects, lending support to the on-going reform initiative.
Against the backdrop of poor services and increasing budget deficits, the multiplier effect of which is borne by end users of goods and services offered by public enterprises, the need for economic reforms of a largely public sector-led economy, characterized by ineptitude of management, lack of accountability, poor operational efficiency, very slow response to market forces, poor quality of services, has become imperative.
Privatisation has encouraged competition in most cases. Without privatisation, there would likely have been less impetus to follow through with market reforms responsible for the current competition drive witnessed across various sectors of the economy.
My fundamental aim therefore is to highlight crucial benefits that have so far been derived from privatisation, as well as to articulate the potential benefits that will accrue from the reform and sale of Federal Governments interests in various public enterprises.
Privatisation in Nigeria began with the creation of the Technical Committee on Privatisation and Commercialisation (the TCPC) in August 1989. The reform programmes have been in three stages. Phase one involved full divestiture of governments shares in oil marketing companies, banks and cement companies. This encompassed about 14 companies, most of which were already quoted on the Nigerian Stock Exchange. The revenue target was to raise about N20 billion.
Phase two involved full divestiture of government ownership in hotels, vehicle assembly plants, insurance companies and other enterprises operating in competitive markets. Phase three involved partial divestiture of the governments holding in major public enterprises operating in non-competitive sectors (monopolies) such as electricity, telecommunications, oil and gas and the likes.
Between 1989 and 1993, TCPC privatised 89 out of the 111 enterprises slated for partial or full privatisation. During the same period, they prepared a comprehensive framework for commercialisation applicable to all public enterprises and specific reform packages for 30 out of the 34 affected enterprises. Performance Agreements were entered into with 26 of the 30 enterprises for which reform packages were available.
Within the same time frame, TCPC offered 1,486,772,063 shares to Nigerians from all spectrums of life. Privatisation massively expanded personal share ownership in former public enterprises. As at 1993, over 800,000 shareholders were created, almost twice as many as there were in 1988 when TCPC was established. The programme demystified the operations of the capital market and created a new awareness in the virtues of shareholding as a form of savings rather than the elitist past time that it was thought to be.
Also, between 1989 and 1993, the Federal Government relinquished about 280 Directorship positions in the privatised enterprises. A total of ₦3.7 billion was realized as sales proceeds and considerable savings realized through the withdrawal of subventions to commercialized public enterprises.
Between 1994 and 1998, the programme went into a lull. In 1999, the programme was reactivated following the establishment of the National Council on Privatisation as the body responsible for superintending the federal governments privatisation and commercialisation programmes, with BPE as its secretariat and implementation arm. Sector reform was also a key strategy adopted by the NCP to address the rot discovered in the early stages of the privatisation program.
It is important to point out that a major obstacle that confronted the NCP when it commenced implementation of its mandate was the lack of well-articulated policies in the key sectors of the economy.
Consequently in 2000, the NCP established the following steering committees: Oil and Gas Sector Implementation Committee (OGIC); Telecommunications Sector Reform Implementation Committee; Transport Sector Implementation Committee; Aviation Sector Reform Implementation Committee; and Electric Power Sector Implementation Committee.
The broad mandate of the committees included the formulation of sector policies to promote competition, efficiency and transparency in the sectors; the formulation of proposals for the attraction of private financing and investment in the sectors; the formulation of proposals for the restructuring and liberalization of the sectors; and the recommendation of the legal and regulatory frameworks for the sectors.The work of the committees and the implementation of the privatisation program by the Bureau further revealed that there were several cross-cutting issues in all the sectors that needed to be addressed. Major amongst them was the collapse of the pension system in the country which was compounded by the inadequate legislation on pension. It also became glaring that to properly manage fiscal reforms, the absence of a proper mechanism for managing cross debts was a major hindrance. In addition, a liberalized economy would require legislation on competition. In Nigeria, no such legislation existed which meant that there was a potential for unfair trade practices with full liberalisation of the economy. Accordingly, the NCP also set up the Steering Committee on Pension Reform, Steering Committee on Resolution and Determination of Cross Debts; and Steering Committee on Competition and Anti-trust Reform.
Some of the steering committees submitted sector policies and draft bills to the NCP. Some of the sector policies were approved by the Federal Executive Council and are in operation, while a significant number of the bills have been passed into law by the National Assembly.They include the Electric Power Sector Reform Act; the Telecommunications or NCC Act; Pension Reform Act; the Debt Management Office (Cross Debts) Act; and the Solid Minerals Act.
The privatisation council approved seven more sector reform bills for transmission to the National Assembly via the Federal Executive Council (FEC). The seven reform bills are Competition and Consumer Protection Bill, popularly known as Anti-Trust Bill; Postal Reform Bill; National Transport Commission(NTC) Bill; Ports and Harbour Bill; National Inland Waterways Bill; Roads Sector Reform Bill; and Railway Bill.Under the NTC Bill, the National Transport Commission will be set up as a multi-sector regulator. The powers of the Commission are derived essentially from the sub-sector bills, namely, the Ports and Harbour Authorities Bill, the Nigerian Railways Commission Bill, the Nigerian Inland Waterways Bill and the Roads Sector Reform Bill.
The ports reforms, which was carried out based on the concessioning approach, was judged by experts to be one of the smoothest, fastest and least problematic ports transactions undertaken globally. Prior to their concession to private operators, Nigerian ports were characterised by a high degree of centralisation with attendant inefficiencies. The Nigerian Ports Authority (NPA) controlled and performed virtually all ports services. The system was grossly inefficient and cumbersome. Tariffs were relatively high with multiplicity of charges by numerous agencies. This was detrimental to efficient ports services leading to excessive costs for shipping lines and consignees, who preferred to patronise other ports in neighbouring countries rather than Nigerian ports; even though the final destination of goods was Nigeria. The Federal Government thus initiated a comprehensive reform of the Nigerian ports with the concession of the port terminals to private operators.
What led the Federal Government to begin to address the pension burden in the country? The Pay-As-You-Go (PAYG) defined benefits pension scheme had become unsustainable with outstanding pension liabilities nation-wide at over a trillion naira. The work of the Pension Reform Steering Committee led to the passage of the Pension Reform Act of 2004 which introduced a new contributory pension scheme. The government also created the National Pension Commission (which has about ₦10.578 trillion assets as at 30th April 2020) and regulates, monitors and issues guidelines for the operation of all pension boards, and provides guidelines for the investment of pension funds. The telecommunications sector reform was the culmination of an extensive study which resulted in the current telecommunications policy and law. The law provided a new legal and regulatory framework for the sector leading to the strengthening of the Nigerian Communications Commission (NCC), the liberalisation of the sector, the emergence of private sector (GSM) operators. Moreover, the reform in this sector, which was spearheaded by BPE, has paved the way for the telecommunications revolution in the country. The reform has transformed the country from 450,000 lines in 2001 to the current figure of 192 million lines.The Power Sector reform engendered the establishment of 11 Distribution Companies, 6 Generation Companies and the Transmission Company of Nigeria. It led to the setting up of the Nigerian Electricity Regulatory Commission, Nigerian Bulk Electricity Trading Plc, Nigeria Electricity Liability Management Company and Nigerian Electricity Management Services Agency. The reform is a necessary tool to lay a solid foundation for sustainable power generation and sector efficiency.Between 1988 and 2020, BPE has privatised 234 enterprises and received ₦745.5 billion as proceeds.That said, the plethora of achievements recorded by BPE shows that it has kept its reform mandate clearly in focus despite the challenges of implementing a reform programme in a developing country.
*Nwabudike, a Public Policy Analyst, wrote from Lagos